I usually do two markups a day, but I decided that for today I'll do one jumbo one to sum up the session. And it's kind of tricky if I'm being honest with myself.
The Fed held this afternoon and the bond market is spending the of the session disagreeing with it.
3.50-3.75%, a 9-3 vote, with Hammack, Kashkari and Logan dissenting in favor of a hike. Three dissents pointing the same direction is the most since 2016. Warsh kept calling it the "family fight" he had asked for.
Then the curve split... The two-year fell, which is the front end taking him at his word. But the thirty-year pushed to 5.226% as I write this, a level it has not seen since 2007, and the ten-year sits at 4.694% against the top of the range that has capped it all month.
Worth understanding why, because this will happen again. The Fed sets exactly one rate, the overnight rate, and the two-year is roughly the average overnight rate the market expects over two years. The thirty-year is not a forecast of Fed policy at all. It is a price for risk. Today the front end priced the Fed's patience and the long end priced what that patience might cost.
Growth and eroding credibility both steepen a curve, so the curve alone will not tell you which one you have. Growth: equities up, volatility down, dollar stronger. Term premium: equities down, volatility up, dollar offered.
At the equity close the Dow was down 2.19% for its worst day since April 2025 (tariff liberation day), the S&P down 1.52%, the Nasdaq down 2.35% and into correction. VIX up more than 13%. Oil up roughly 7% due to the Middle East of course.
The dollar is what I keep coming back to. A growth scare bids the dollar, because frightened capital needs dollars to buy Treasuries. DXY fell 0.44% into all of that. That is the piece that does not fit, and it is why I read this as the market demanding more compensation to hold US assets rather than running toward them.
Where I could be wrong: this is purely after the meeting, and the two-year's decline has already shrunk through the afternoon. If it turns higher and both ends rise together, this is a plain bear steepener and my read is finished.
read the full article here.
— Alan
